Businesses and other organizations are exposed to all types of risk. Anything threatening a company’s ability to achieve its financial, operational, or compliance objectives is considered a business risk.
Sometimes an organization’s management or employees create situations that increase risk exposure. Usually, however, external factors are the typical causes of risk, such as natural disasters, business competitors, regulatory changes, cybersecurity attacks, or exchange rates (to name only a few).
It’s therefore essential to protect your business from risk — and especially from security threats. Companies can never wholly eliminate business risk because of its inherent unpredictability, but they can implement risk mitigation strategies, such as developing (and following) a risk management plan.
Types of Business Risks
So what are the significant risks facing businesses today? Let’s consider a few major categories.
Compliance risks arise from the expectations that regulatory agencies place upon corporations. All companies must comply with relevant laws, regulations, rules, and even industry standards; the chance that you might not meet those expectations is compliance risk.
Ignoring compliance risk can result in significant fines and penalties. It is your responsibility to understand what regulatory and compliance obligations apply to your company, and what you need to do to achieve and maintain compliance.
Businesses today rely on technology to manage their operations and conduct transactions with customers or other partners. The vulnerability that reliance brings — everything from cybersecurity attacks to IT failures that shut down operations — is technology risk.
Technology risks can have a significant impact on your company’s operations and reputation. For example, data loss to hackers can result in harsh financial fines from regulators and costly litigation. Businesses need to invest in security and threat detection technologies to catch these threats before they cause harm.
Financial risk is the chance that the company will lose money on a transaction, project, or other business venture. Examples range from increasing your company’s debt load to unsustainable levels, to swiftly changing interest rates, to customers suddenly unable or unwilling to pay their bills.
Businesses tread carefully with financial risks, taking necessary precautions (insurance policies, escrow accounts, downpayments, and so forth) to assure that they don’t get burned by a turn in financial fortunes.
Operational risks are the uncertainties and hazards that a company encounters when doing day-to-day business activities. This type of business risk arises from failures in internal procedures, people, and systems.
Operational risks are easier to manage than difficulties caused by external influences such as political or economic events or the systemic risk inherent to the entire market or market segment.
Reputation risks are events or transactions that jeopardize a company’s good standing with its stakeholder groups. Reputation risks can harm brand loyalty, workforce morale, share price, and more. Moreover, bad news can now travel quickly thanks to the Internet and social media, which substantially compounds the threat of reputational risk.
To manage reputation risk, companies must monitor their digital footprint and be prepared to respond to bad news when it happens. It’s also crucial to demonstrate to the public that you’re aware of the situation and are ready to take the necessary steps to correct or improve the circumstances.
A corporation suffers strategic risk when it fails to operate according to its business model or plan. Its strategy may lose efficacy over time, and the company may struggle to meet its specified goals. For example, an insurance company that strategically positions itself with low-cost healthcare insurance policies would face a strategic risk if its competitors decide to cut rates.
How to Manage Risks for Your Business
Business risk is pervasive and eternal, but it doesn’t need to be severe. Organizations can take several steps to reduce their business risk and keep that risk at tolerable levels for the long term.
Create a Risk Management Plan
One of the most important practices is to create a risk management plan. That plan should include all possible risks, the likelihood and priority for each, and programs for prevention, mitigation, or management.
For example, suppose your company location is in an earthquake-prone area of the country. In that case, you may have an earthquake preparedness plan on how you can minimize and manage the risks associated with this type of natural disaster.
Implement a Business Continuity Plan
Your business operations and information systems must have backup and contingency plans to assure business continuity in case of any disruption, natural disaster, or human mistake.
Even if your physical property or hardware is destroyed, you must have a backup plan in place, including a backup location, system, and protocols for the worst-case scenario so that you can continue to operate.
Purchase an Insurance Policy
Every business should determine its insurance needs and obtain coverage. Consider insurance coverage to recover assets in case of fire, theft, or natural disaster. A liability policy protects your business if someone gets hurt on or from your property.
Each insurance company and policy differs in what it covers, so be sure to find an insurance policy that fits your business needs. For example, a real estate or legal business might get an error and omissions insurance policy if a professional error causes a client to sue you.
Train Your Employees
Your company and its employees should be aware of and implement risk control efforts, such as cybersecurity plans. It’s crucial to have employees involved to know how to avoid risks and how to deal with them, to help your company avoid further damage or exposure to risk.
It is recommended to have staff training and implement security policies for employees to follow. In addition, conduct user access reviews from time to time to understand how your team members use data and access critical systems. These activities cultivate awareness and continuously expose new risks.
ZenGRC Helps Businesses Mitigate Risks
ZenGRC performs all these tasks and more, including unlimited self-audits, audit trail documentation, and, with our ZenConnect solution, integration with all of your business applications. Our compliance platform also provides instant feedback on the effectiveness of your corporate risk management methods.
Our risk software heat maps illustrate high, low, and medium risk regions within your organization in a user-friendly, color-coded dashboard, allowing you to take action quickly and share the results with your C-suite and board of directors.
Our software is compatible with more than a dozen compliance frameworks and standards, allowing you to map your risks and controls across frameworks, identify gaps, and advise how to close them.
Worry-free risk management in the Zen way! Learn more about how ZenGRC can help your business.